In the latest twist in its economic travails, Argentina announced that it would make a "goodwill payment of $77m (£48.8m) interest owed to the World Bank. But it said it would not pay the full $805m that was due yesterday until it had successfully concluded negotiations for new loans with the World Bank's sister organisation, the International Monetary Fund.

It was the IMF's decision last December to refuse any more loans to Argentina that forced it to default on about $95bn of its $141bn in foreign debt - the largest ever country default - and plunged the country into financial crisis. But until now, Argentina remained in good standing with the multilateral lending institutions.

In the short term, yesterday's decision should have little impact as the World Bank will continue to disburse money to Argentina under existing loans for at least 30 days. But after that period, unless Argentina has cleared its arrears, there will be no more loans to help ease the plight of the poor, who are naturally hit hardest by economic turmoil.

The decision to default amounts to a calculated political gamble by Argentina's president, Eduardo Duhalde, to try to clinch a rescue package with the IMF after 11 months of tough negotiations. The move is aimed at both at the IMF and Argentina's legislative branch.

Argentina justified its decision to pay only interest on its World Bank debt by saying that a full repayment would have dropped Argentina's reserves below the $9bn that the IMF has recommended the country maintain. So the message to the IMF was: sign off on a deal now so we can fulfil our international financial commitments.

Mr Duhalde was also sending a signal to the Argentine Congress. According to top Argentine officials, the Duhalde government and the IMF are very close to a deal on the issues that have been the thorniest, such as laws to protect foreign businesses and cuts in public spending.

But they say that Mr Duhalde lacks support to push these unpopular measures through Congress, where even his Peronist Party is split between those who support him and those who favour rival candidates to succeed him in next spring's elections

So the move amounts to shock therapy in an attempt to get the IMF and Congress to shift their positions. On the home front, Mr Duhalde has called an emergency meeting next week of governors and senior congressional leaders in a bid to line up support for a deal with the IMF.

"From our point of view, this is not a default - rather an unfortunate but necessary action on the way towards reaching an agreement," said Eduardo Amadeo, Mr Duhalde's deputy cabinet chief, who has been appointed ambassador to Washington.

It is a high risk manoeuvre. Mr Duhalde needs an IMF agreement soon because Argentina has to make an additional $2.2bn in other payments due to the World Bank before January. If it misses those payments, Argentina's financial reputation, despite recent encouraging signs of stability, could take a further beating and the country could well resume its downward slide.

In evidence that the economic crisis is easing, the Argentine peso has stabilised against the dollar and the central bank is accumulating reserves once again. Meanwhile, the run on bank deposits has eased and new deposits are growing rapidly. But Argentina still has a long hard road ahead. One in five Argentines is unemployed, while many are so poor they cannot buy even basic food and clothing. So a deal with the IMF is crucial if Argentina is to build on its recent progress.